The market for liquefied natural gas is about to attract more players and more trading as new supply from the U.S. and Australia strengthens buyers’ bargaining power, Bloomberg reports.
Historically, LNG has been sold on long-term contracts that guaranteed buyers supply and helped producers finance liquefaction plants at a time when less of the product was shipped. Now, a gas glut is causing LNG importing countries to support renegotiating existing deals that can run 20 years or more while suppliers offer more flexible terms to lock up customers spoiled for choice.
India already is encouraging importers to rework long-term accords to better align costs with spot market prices. Japan, the world’s largest LNG importer, may soon join them. That country’s Fair Trade Commission is in the process of probing resale restrictions in longer deals in an effort that could mean the renegotiation of more than $600 billion in contracts and boost the number of shorter-term agreements.
“There will be 40 million to 50 million tons of homeless LNG by 2020, which can go anywhere or doesn’t have any fixed customers,” says Hiroki Sato, a senior executive vice president with Jera Co., a fuel buyer that plans to increase spot and short-term LNG deals. “Homeless LNG will provide a great opportunity to improve liquidity in Asian and global markets.”
Global LNG trade rose 2.5% to a record 245.2 million tons in 2015, according to the International Group of Liquefied Natural Gas Importers. A million tons of the supercooled fuel is equivalent to about 48 billion cubic feet of natural gas, which is enough to heat about 690,000 homes for winter in the U.S. Northeast.
Twenty-eight percent of LNG traded in 2015 was on a spot or short-term basis, according to the importers’ group. That’s up from 18.9% in 2010, according to the group.
